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CHAPTER 1

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INTRODUCTION:

What is the WTO?

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

Who we are
There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTOs current work comes from the 198694 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the Doha Development Agenda launched in 2001. Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to open markets for trade. But the WTO is not just about opening markets, and in some circumstances its rules support maintaining trade barriers for example, to protect consumers or prevent the spread of disease. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations. These documents provide the legal ground rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and

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3 importers conduct their business, while allowing governments to meet social and environmental objectives. The systems overriding purpose is to help trade flow as freely as possible so long as there are no undesirable side effects because this is important for economic development and well-being. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be transparent and predictable. Trade relations often involve conflicting interests. Agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose behind the dispute settlement process written into the WTO agreements.

What we do
The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who usually meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). While the WTO is driven by its member states, it could not function without its Secretariat to coordinate the activities. The Secretariat employs over 600 staff, and its experts lawyers, economists, statisticians and communications experts assist WTO members on a daily basis to ensure, among other things, that negotiations progress smoothly, and that the rules of international trade are correctly applied and enforced. Trade negotiations The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes. These agreements are not static; they are renegotiated from time to time and new

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4 agreements can be added to the package. Many are now being negotiated under the Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar, in November 2001. Implementation and monitoring WTO agreements require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted. Various WTO councils and committees seek to ensure that these requirements are being followed and that WTO agreements are being properly implemented. All WTO members must undergo periodic scrutiny of their trade policies and practices, each review containing reports by the country concerned and the WTO Secretariat. Dispute settlement The WTOs procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed. Judgements by specially appointed independent experts are based on interpretations of the agreements and individual countries commitments. Building trade capacity WTO agreements contain special provision for developing countries, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities, and support to help them build their trade capacity, to handle disputes and to implement technical standards. The WTO organizes hundreds of technical cooperation missions to developing countries annually. It also holds numerous courses each year in Geneva for government officials. Aid for Trade aims to help developing countries develop the skills and infrastructure needed to expand their trade. Outreach

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5 The WTO maintains regular dialogue with non-governmental organizations, parliamentarians, other international organizations, the media and the general public on various aspects of the WTO and the ongoing Doha negotiations, with the aim of enhancing cooperation and increasing awareness of WTO activities.

What we stand for

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system. Non-discrimination A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products, services or nationals. More open Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively. Predictable and transparent Foreign companies, investors and governments should be confident that trade barriers should not be raised arbitrarily. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition choice and lower prices. More competitive Discouraging unfair practices, such as export subsidies and dumping products at below cost to gain market share; the issues are complex, and the rules try to establish

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6 what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.

More beneficial for less developed countries Giving them more time to adjust, greater flexibility and special privileges; over threequarters of WTO members are developing countries and countries in transition to market economies. The WTO agreements give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions. Protect the environment The WTOs agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health. However, these measures must be applied in the same way to both national and foreign businesses. In other words, members must not use environmental protection measures as a means of disguising protectionist policies.

DISPUTES SETTLEMENT MECHANISM OF WTO

HISTORY OF THE ORIGIN

After World War II, the United Kingdom and the United States submitted proposals to the Economic and Social Council (ECOSOC) of the United Nations regarding the establishment of an international trade body that was to be named the International Trade Organization (ITO). That is, perhaps, why the GATT is often referred to as a UN related body and its documents are sometimes mistakenly referred to as UN documents. ECOSOC convened a conference, the United Nations Conference on Trade and Employment in 1946 to consider the UK and U.S. proposals. A Preparatory Committee drafted the ITO Charter and it was approved in 1948 at the conference in Havana, Cuba. The Charter is often referred to as the Havana Charter or the ITO Charter. The first round of trade negotiations took place while the Preparatory Committee was still working on drafting the Charter because the participants were anxious to begin the process of trade liberalization as soon as possible. Their results were incorporated into the General Agreement, which was signed in 1947. Since the original signatory nations expected the Agreement to become part of the more permanent ITO Charter, the text of the GATT contains very little "institutional" structure. This lack of detail within the agreement has created increasing difficulties as the GATT membership and roles governing trade between so many of the world's nations have grown. The GATT has functioned as an international organization for many years even though it has never been formalized as such. ECOSOC established an Interim Commission for the ITO that is referred to as ICITO. Unfortunately, when it came time for the members to ratify the ITO Charter, the Congress of the United States refused and the ITO never became a reality. The GATT survived, but remained intact only due to the Protocol of Provisional DISPUTES SETTLEMENT MECHANISM OF WTO

8 Application of the General Agreement on Tariffs and Trade which was concluded in 1947 and which entered into force in 1948.

The GATT completed 8 rounds of multilateral trade negotiations (MTNs). The Uruguay Round (the 8th round) concluded with the signing of the Final Act on April 15, 1994, in Marrakesh, and produced the World Trade Agreement (WTO) and its annexes.

OBJECTIVE OF THE WTO

After WWII, the US & other nations established the General Agreement on Tariffs & Trade (GATT) in 1947. The GATT was designed to: - Gradually eliminate barriers to trade. - Provide a set of rules & a means for their enforcement. The clarification, strengthening & extension of GATT rules saw the creation of the World Trade Organisation (WTO) on January 1st 1995 and held out the promise of more effective policing & enforcement of the global trading system.

Currently there are four main objectives of the WTO: i. The high level of protectionism in agriculture. ii. The continued high tariff rates on non-agricultural goods & services in many nations. iii. The lack of strong protection for intellectual property rights in many nations. iv. The increase in anti-dumping policies.

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CHAPTER 2

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WTO & DISPUTE SETTLEMENT MECHANISM

The WTO's Dispute Settlement Understanding (DSU) evolved out of the ineffective means used under the GATT for settling disagreements among members. Under the GATT, procedures for settling disputes were ineffective and time consuming since a single nation, including the nation who's actions were the subject of complaint, could effectively block or delay every stage of the dispute resolution process.(1) It remains to be seen whether countries will comply with the new WTO dispute settlement mechanism, but thus far the process has met with relative success. The DSU was designed to deal with the complexity of reducing and eliminating nontariff barriers to trade. A non-tariff trade barrier can be almost any government policy or regulation that has the effect of making it more difficult or costly for foreign competitors to do business in a country. In the early years of the GATT, most of the progress in reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff levels on those goods. More recently, tariffs have been all but eliminated in a wide variety of sectors. This has meant that non-tariff trade barriers have become more important since, in the absence of tariffs, only such barriers significantly distort the overall pattern of trade-liberalization. Frequently, such nontariff trade barriers are the inadvertent consequence of well meaning attempts to regulate to ensure safety or protection for the environment, or other public policy goals. In other cases, countries have been suspected of deliberately creating such regulations under the guise of regulatory intent, but which have the effect of protecting domestic industries from open international competition, to the detriment of the international free-trade regime. The WTO's strengthened dispute resolution mechanism was designed to have the authority to sort out this "fine line between national prerogatives and unacceptable trade restrictions"(2) Several of the supplemental agreements to the SGATT created during the Uruguay Round, such as the SPS Agreement, sought

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11 to specify the conditions under which national regulations were permissible even if they had the effect of restraining trade. The United States, perhaps more than any other country, has found itself on both sides of this delicate balance. In 1988, it was the United States who pushed for strengthening the Dispute Settlement provisions of the GATT during the Uruguay Round, in part because Congress was not convinced that, "the GATT, as it stood, could offer the United States an equitable balance of advantage."(3) The concern was that formal concessions granted to U.S. exports going into other countries would be eroded by hidden barriers to trade. On the other hand, the United States harbors reservations in regards to its sovereignty, with much of the negative reaction to the WTO itself centered around the concern that U.S. laws and regulations may be reversed by the DSU panels or the Appellate Body. Critics argued that the WTO would "compel Congress and our states to abandon many health and environmental standards" if they were at odds with international trade rules.(4) Particularly, these critics noted that the United States would not have a veto in the WTO and that each nation would have an equal say in the DSB, which ultimately votes to adopt or reject panel reports. They further noted that the Appellate Body and the dispute settlement panels vote in secret, and that they could authorize nations to retaliate against violations of the trade agreements with unilateral sanctions. It was argued by some that the cumulative effect of WTO dispute panel decisions would be to erode the sovereignty of the United States. One of the purposes of this review is to assess the validity of this claim in light of the actual functioning of the WTO system over the last three year.

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FUNCTIONS, OBJECTIVES AND KEY FEATURES OF THE DISPUTE SETTLEMENT SYSTEM

Providing security and predictability to the multilateral trading system
A central objective of the (WTO) dispute settlement system is to provide security and predictability to the multilateral trading system (Article 3.2 of the DSU). Although international trade is understood in the WTO as the flow of goods and services between Members, such trade is typically not conducted by States, but rather by private economic operators. These market participants need stability and predictability in the government laws, rules and regulations applying to their commercial activity, especially when they conduct trade on the basis of long-term transactions. In light of this, the DSU aims to provide a fast, efficient, dependable and rule-oriented system to resolve disputes about the application of the provisions of theWTO Agreement. By reinforcing the rule of law, the dispute settlement system makes the trading system more secure and predictable. Where non-compliance with the WTO Agreement has been alleged by a WTO Member, the dispute settlement system provides for a relatively rapid resolution of the matter through an independent ruling that must be implemented promptly, or the non-implementing Member will face possible trade sanctions.

Preserving the rights and obligations of WTO Members

Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or more other Members consider to be inconsistent with the obligations set out in the WTO Agreement. In such a case, any Member that feels aggrieved is entitled to invoke the procedures and provisions of the dispute settlement system in order to challenge that measure. If the parties to the dispute do not manage to reach a mutually agreed solution, the complainant is guaranteed a rules-based procedure in which the merits of its claims will be examined by an independent body (panels and the Appellate Body). If the DISPUTES SETTLEMENT MECHANISM OF WTO

13 complainant prevails, the desired outcome is to secure the withdrawal of the measure found to be inconsistent with the WTO Agreement. Compensation and countermeasures (the suspension of obligations) are available only as secondary and temporary responses to a contravention of the WTO Agreement (Article 3.7 of the DSU). Thus, the dispute settlement system provides a mechanism through which WTO Members can ensure that their rights under the WTO Agreement can be enforced. This system is equally important from the perspective of the respondent whose measure is under challenge, since it provides a forum for the respondent to defend itself if it disagrees with the claims raised by the complainant. In this way, the dispute settlement system serves to preserve the Members rights and obligations under the WTO Agreement (Article 3.2of the DSU). The rulings of the bodies involved (the DSB the Appellate Body, panels and arbitrations 1) are intended to reflect and correctly apply the rights and obligations as they are set out in the WTO Agreement. They must not change the WTO law that is applicable between the parties or, in the words of the DSU, add to or diminish the rights and obligations provided in the WTO Agreements (Articles 3.2 and 19.2 of the DSU).

Clarification of rights and obligations through interpretation

The precise scope of the rights and obligations contained in the WTO Agreement is not always evident from a mere reading of the legal texts. Legal provisions are often drafted in general terms so as to be of general applicability and to cover a multitude of individual cases, not all of which can be specifically regulated. Whether the existence of a certain set of facts gives rise to a violation of a legal requirement contained in a particular provision is, therefore, a question that is not always easy to answer. In most cases, the answer can be found only after interpreting the legal terms contained in the provision at issue. In addition, legal provisions in international agreements often lack clarity because they are compromise formulations resulting from multilateral negotiations. The various participants in a negotiating process often reconcile their diverging positions DISPUTES SETTLEMENT MECHANISM OF WTO

14 by agreeing to a text that can be understood in more than one way so as to satisfy the demands of different domestic constituents. The negotiators may thus understand a particular provision in different and opposing ways. For those reasons, as in any legal setting, individual cases often require an interpretation of the pertinent provisions. One might think that such an interpretation cannot occur in (WTO) dispute settlement proceedings because Article IX:2 of the WTO Agreement provides that the Ministerial Conference and the General Council of the WTO have the exclusive authority to adopt interpretations of the WTO Agreement. However, theDSU expressly states that the dispute settlement system is intended to clarify the provisions of the WTO Agreement in accordance with customary rules of interpretation of public international law (Article 3.2 of the DSU). The DSU, therefore, recognizes the need to clarify WTO rules and mandates that this clarification take place pursuant to customary rules of interpretation. In addition, Article 17.6 of the DSU implicitly recognizes that panels may develop legal interpretations. The exclusive authority of Article IX:2 of the WTO Agreement must therefore be understood as the possibility to adopt authoritative interpretations that are of general validity for all WTO Members unlike interpretations by panels and the Appellate Body, which are applicable only to the parties and to the subject matter of a specific dispute. Accordingly, the DSU mandate to clarify WTO rules is without prejudice to the rights of Members to seek authoritative interpretations under Article IX:2 of the WTO Agreement (Article 3.9 of the DSU). As regards the methods of interpretation, the DSU refers to the customary rules of interpretation of public international law (Article 3.2 of the DSU). While customary international law is normally unwritten, there is an international convention that has codified some of these customary rules of treaty interpretation. Notably, Articles 31, 32 and 33 of the Vienna Convention on the Law of Treaties embody many of the customary rules of interpretation of public international law. While the reference in Article 3.2of the DSU does not refer directly to these Articles, the Appellate Body

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15 has ruled that they can serve as a point of reference for discerning the applicable customary rules1.The three Articles read as follows:

Mutually Agreed Solutions as Preferred Solution

Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement (Article 3.7 of the DSU). Adjudication is to be used only when the parties cannot work out a mutually agreed solution. By requiring formal consultations as the first stage of any dispute, the DSU provides a framework in which the parties to a dispute must always at least attempt to negotiate a settlement. Even when the case has progressed to the stage of adjudication, a bilateral settlement always remains possible, and the parties are always encouraged to make efforts in that direction (Articles 3.7 and 11 of the DSU). Prompt settlement of disputes The DSU emphasizes that prompt settlement of disputes is essential if the (WTO) is to function effectively and the balance of rights and obligations between the Members is to be maintained (Article 3.3 of the DSU). It is well known that, to be achieved, justice must not only provide an equitable outcome but also be swift. Accordingly, the DSU sets out in considerable detail the procedures and corresponding deadlines to be followed in resolving disputes. The detailed procedures are designed to achieed, justice must not only provide an equitable outcome but also be swift. Accordingly, the DSU sets out in considerable detail the procedures and corresponding deadlines to be followed in resolving disputes. The detailed procedures are designed to achieve efficiency, including the right of a complainant to move forward with a complaint even in the absence of agreement by the respondent (Articles 4.3and 6.1 of the DSU). If a case is adjudicated, it should

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16 normally take no more than one year for a panel ruling and no more than 16 months if the case is appealed (Article 20 of the DSU). If the complainant deems the case urgent, consideration of the case should take even less time (Articles 4.9and 12.8 of the DSU). These time-frames might still appear long, considering that time for

implementation will have to be added after the ruling. Also, for the entire duration of the dispute, the complainant may still suffer economic harm from the challenged measure; and even after prevailing in dispute settlement, the complainant will receive no compensation for the harm suffered before the time by which the respondent must implement the ruling. However, one must take into account that disputes in the WTO are usually very complex in both factual and legal terms. Parties generally submit a considerable amount of data and documentation relating to the challenged measure, and they also put forward very detailed legal arguments. The parties need time to prepare these factual and legal arguments and to respond to the arguments put forward by the opponent. The panel (and the Appellate Body) assigned to deal with the matter needs to consider all the evidence and arguments, possibly hear experts, and provide detailed reasoning in support of its conclusions. Considering all these aspects, the dispute settlement system of the WTO functions relatively fast and, in any event, much faster than many domestic judicial systems or other international systems of adjudication. Prohibition against unilateral determinations WTO Members have agreed to use the multilateral system for settling their WTO trade disputes rather than resorting to unilateral action (Article 23 of the DSU). That means abiding by the agreed procedures and respecting the rulings once they are issued and not taking the law into their own hands. If Members were to act unilaterally, this would have obvious disadvantages that are well known from the history of the multilateral trading system. Imagine that one

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17 Member accuses another Member of breaking WTO rules. As a unilateral response, the accusing Member could decide to take a countermeasure, i.e. to infringe WTO obligations with regard to the other Member (by erecting trade barriers). Under traditional international law, that Member could argue that it has acted lawfully because its own violation is justified as a countermeasure in response to the other Members violation that had occurred first. If, however, the accused Member disagrees on whether its measure truly infringes WTO obligations, it will not accept the argument of a justified countermeasure. On the contrary, it may assert that the countermeasure is illegal and, on that basis, it may feel justified in taking a countermeasure against the first countermeasure. The original complainant, based on its legal view on the matter, is likely to disagree and to consider that second countermeasure illegal. In response, it may adopt a further countermeasure. This shows that, if the views differ, unilateral actions are not able to settle disputes harmoniously. Things may spiral out of control and, unless one of the parties backs down, there is a risk of escalation of mutual trade restrictions, which may result in a trade war. To prevent such downward spirals, the DSU mandates the use of a multilateral system of dispute settlement to which WTO Members must have recourse when they seek redress against another Member under the WTO Agreement (Article 23.1 of the DSU). This applies to situations in which a Member believes that another Member violates the WTO Agreement or otherwise nullifies or impairs benefits under the WTO Agreements or impedes the attainment of an objective of one of the agreements. In such cases, a Member cannot take action based on unilateral determinations that any of these situations exist, but may only act after recourse to dispute settlement under the rules and procedures of the DSU. Whatever actions the complaining Member takes, it may only take them based on the findings of an adopted panel or Appellate Body report or arbitration award (Article 23.2(a) of the DSU). The Member concerned must also respect the procedures foreseen in the DSU for the determination of the time for implementation and impose countermeasures only on

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18 the basis of an authorization by the DSB (Article 23.2(b) and (c) of the DSU). This excludes unilateral actions such as those described above. Exclusive jurisdiction By mandating recourse to the multilateral system of the WTO for the settlement of disputes, Article 23 of the DSU not only excludes unilateral action, it also precludes the use of other fora for the resolution of a WTO-related dispute. Compulsory nature The dispute settlement system is compulsory. All WTO Members are subject to it, as they have all signed and ratified the WTO Agreement as a single undertaking 2, of which the DSU is a part. The DSU subjects all WTO Members to the dispute settlement system for all disputes arising under the WTO Agreement. Therefore, unlike other systems of international dispute resolution, there is no need for the parties to a dispute to accept the jurisdiction of the WTO dispute settlement system in a separate declaration or agreement. This consent to accept the jurisdiction of the WTO dispute settlement system is already contained in a Members accession to the WTO. As a result, every Member enjoys assured access to the dispute settlement system and no responding Member may escape that jurisdiction.

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CHAPTER 3

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RATIONALE BEHIND THE DISPUTE SETTLEMENT

The rationale behind the Dispute Settlement Understanding (DSU) of the WTO is to provide Members with a clear legal for solving disputes which may arise in the course of implementing WTO agreements. Clearly, agreed solutions between Members are the most desirable way of solving disputes. However, if this is not possible, Members can ask for panels followed by appeal procedures whereas the panel or the Appellate Body, by interpreting the rules, solves the dispute. If a Member does not comply with WTO recommendations and rulings on bringing its measures in line with WTO rules, then trade compensation or sanctions, for example in the form of duty increases or suspension of WTO obligations may follow.

WTO Members, including the EU, are consistently making use of the dispute settlement mechanism (see: cases involving the EU). However, the EU never initiates a dispute settlement case before exhausting all other ways of finding solutions. The system has, so far, worked well to solve very important disputes and avoiding 'trade wars'. For this reason, the EU considers that, overall; the system is functioning well and has helped to ensure real market-opening. Moreover, it compares extremely well with other international dispute settlement systems in terms of speed and efficiency. By providing a multilateral forum for settling disputes, the mechanism guards weaker Members against unilateral action by the strongest. Current talks about improving the system

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21 The Doha Ministerial Declaration mandates for negotiations on improvements and clarification of the system. The EU is fully committed to making the system even more effective, predictable and transparent. The EU would like to reinforce the system concerning issues such as: Improving panel composition procedures Clarification of the DSU provisions on implementation. This covers notably: 1. The sequencing issue (that is, the steps which need to be taken, and their order, before determining that the losing party has not complied correctly with the DSB recommendations and reacting accordingly) 2. The arbitration procedure on the level of suspension of concessions

3. The establishment of a procedure to lift suspension of concessions once a losing party has implemented changes Speeding up the process whenever this is feasible and justified; Greater transparency, which is needed to secure continued public support and confidence in the WTO system, while preserving its intergovernmental character.

The dispute settlement system and developing countries

The EU recognizes the difficulties that developing countries face in participating actively in the dispute settlement system. Within the framework of the negotiations on the Dispute Settlement Understanding, the EU is in favor of initiatives aimed at granting to developing countries a better access to the system and providing them with the necessary training and technical assistance. Procedures: Understanding on Rules and Procedures Governing the Settlement of Disputes back to top

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22 The dispute settlement system of the GATT is generally considered to be one of the cornerstones of the multilateral trade order. The system has already been strengthened and streamlined as a result of reforms agreed following the Mid-Term Review Ministerial Meeting held in Montreal in December 1988. Disputes currently being dealt with by the Council are subject to these new rules, which include greater automaticity in decisions on the establishment, terms of reference and composition of panels, such that these decisions are no longer dependent upon the consent of the parties to a dispute. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) will further strengthen the existing system significantly, extending the greater automaticity agreed in the Mid-Term Review to the adoption of the panels and a new Appellate Bodys findings. Moreover, the DSU will establish an integrated system permitting WTO Members to base their claims on any of the multilateral trade agreements included in the Annexes to the Agreement establishing the WTO. For this purpose, a Dispute Settlement Body (DSB) will exercise the authority of the General Council and the Councils and committees of the covered agreements.

The DSU emphasizes the importance of consultations in securing dispute resolution, requiring a Member to enter into consultations within 30 days of a request for consultations from another Member. If after 60 days from the request for consultations there is no settlement, the complaining party may request the establishment of a panel. Where consultations are denied, the complaining party may move directly to request a panel. The parties may voluntarily agree to follow alternative means of dispute settlement, including good offices, conciliation, mediation and arbitration.

Where a dispute is not settled through consultations, the DSU requires the establishment of a panel, at the latest, at the meeting of the DSB following that at which a request is made, unless the DSB decides by consensus against establishment. The DSU also sets out specific rules and deadlines for deciding the terms of reference and composition of panels. Standard terms of reference will apply unless the parties agree to special terms within 20 days of the panels establishment. And

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23 where the parties do not agree on the composition of the panel within the same 20 days, this can be decided by the Director-General. Panels normally consist of three persons of appropriate background and experience from countries not party to the dispute. The Secretariat will maintain a list of experts satisfying the criteria.

Panel procedures are set out in detail in the DSU. It is envisaged that a panel will normally complete its work within six months or, in cases of urgency, within three months. Panel reports may be considered by the DSB for adoption 20 days after they are issued to Members. Within 60 days of their issuance, they will be adopted, unless the DSB decides by consensus not to adopt the report or one of the parties notifies the DSB of its intention to appeal.

The concept of appellate review is an important new feature of the DSU. An Appellate Body will be established, composed of seven members, three of whom will serve on any one case. An appeal will be limited to issues of law covered in the panel report and legal interpretations developed by the panel. Appellate proceedings shall not exceed 60 days from the date a party formally notifies its decision to appeal. The resulting report shall be adopted by the DSB and unconditionally accepted by the parties within 30 days following its issuance to Members, unless the DSB decides by consensus against its adoption.

Once the panel report or the Appellate Body report is adopted, the party concerned will have to notify its intentions with respect to implementation of adopted recommendations. If it is impracticable to comply immediately, the party concerned shall be given a reasonable period of time, the latter to be decided either by agreement of the parties and approval by the DSB within 45 days of adoption of the report or through arbitration within 90 days of adoption. In any event, the DSB will keep the implementation under regular surveillance until the issue is resolved.

Further provisions set out rules for compensation or the suspension of concessions in the event of non-implementation. Within a specified time-frame, parties can enter DISPUTES SETTLEMENT MECHANISM OF WTO

24 into negotiations to agree on mutually acceptable compensation. Where this has not been agreed, a party to the dispute may request authorization of the DSB to suspend concessions or other obligations to the other party concerned. The DSB will grant such authorization within 30 days of the expiry of the agreed time-frame for implementation. Disagreements over the proposed level of suspension may be referred to arbitration. In principle, concessions should be suspended in the same sector as that in issue in the panel case. If this is not practicable or effective, the suspension can be made in a different sector of the same agreement. In turn, if this is not effective or practicable and if the circumstances are serious enough, the suspension of concessions may be made under another agreement.

One of the central provisions of the DSU reaffirms that Members shall not themselves make determinations of violations or suspend concessions, but shall make use of the dispute settlement rules and procedures of the DSU.

The DSU contains a number of provisions taking into account the specific interests of the developing and the least-developed countries. It also provides some special rules for the resolution of disputes which do not involve a violation of obligations under a covered agreement but where a Member believes nevertheless that benefits are being nullified or impaired. Special decisions to be adopted by Ministers in 1994 foresee that the Montreal Dispute Settlement Rules which would otherwise have expired at the time of the April 1994 meeting are extended until the entry into force of the WTO. Another decision foresees that the new rules and procedures will be reviewed within four years after the entry into force of the WTO.

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THE PROCESS STAGES IN A TYPICAL WTO DISPUTE SETTELMENT CASE

This chapter explains all the various stages through which a dispute can pass in the (WTO) dispute settlement system. There are two main ways to settle a dispute once a complaint has been filed in the WTO: (i) the parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and (ii) through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by the DSB. There are three main stages to the WTO dispute settlement process: (i) consultations between the parties; (ii) adjudication by panels and, if applicable, by the Appellate Body; and (iii) the implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.

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Flow chart of the Dispute Settlement Process

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TRADE POLICY MECHANISM

An agreement confirms the Trade Policy Review Mechanism, introduced at the time of the Mid-term Review, and encourages greater transparency in national trade

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28 policy-making. A further Ministerial decision reforms the notification requirements and procedures generally.

Decision on achieving greater coherence in global economic policy-making back to top

This will set out concepts and proposals with respect to achieving greater coherence in global economic policy-making. Among other things, the text notes that greater exchange rate stability based on more orderly underlying economic and financial conditions should contribute to the expansion of trade, sustainable growth and development, and the timely correction of external imbalances. It recognizes that while difficulties whose origins lie outside the trade field cannot be redressed through measures taken in the trade field alone, there are nevertheless interlinkages between the different aspects of economic policy. Therefore, WTO is called upon to develop its cooperation with the international organizations responsible for monetary and financial matters. In particular, the Director-General of WTO is called upon to review, with his opposite numbers in the World Bank and the International Monetary Fund, the implications of WTOs future responsibilities for its cooperation with the Bretton Woods institutions.

GOVERNMENT PROCUREMENT

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29 The Final Act contains an agreement related to accession procedures to the Government Procurement Agreement which is designed to facilitate the membership of developing countries. It envisages consultations between the existing members and applicant governments. These would be followed by the establishment of accession working parties to examine the offers made by applicant countries (in other words, the public entities whose procurement will be opened up to international competition) as well as the export opportunities for the applicant country in the markets of existing signatories.

This agreement should be distinguished from the new Agreement on Government Procurement.

findings:

Understanding on Rules and Procedures Governing the Settlement of Disputes back to top

The dispute settlement system of the GATT is generally considered to be one of the cornerstones of the multilateral trade order. The system has already been strengthened and streamlined as a result of reforms agreed following the Mid-Term Review Ministerial Meeting held in Montreal in December 1988. Disputes currently being dealt with by the Council are subject to these new rules, which include greater automaticity in decisions on the establishment, terms of reference and composition of panels, such that these decisions are no longer dependent upon the consent of the parties to a dispute. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) will further strengthen the existing system significantly, extending the greater automaticity agreed in the Mid-Term Review to the adoption of the panels and a new Appellate Bodys findings. Moreover, the DSU will establish an integrated system permitting WTO Members to base their claims on any of the multilateral trade agreements included in the Annexes to the Agreement establishing the WTO. For this purpose, a Dispute Settlement Body DISPUTES SETTLEMENT MECHANISM OF WTO

30 (DSB) will exercise the authority of the General Council and the Councils and committees of the covered agreements.

The DSU emphasizes the importance of consultations in securing dispute resolution, requiring a Member to enter into consultations within 30 days of a request for consultations from another Member. If after 60 days from the request for consultations there is no settlement, the complaining party may request the establishment of a panel. Where consultations are denied, the complaining party may move directly to request a panel. The parties may voluntarily agree to follow alternative means of dispute settlement, including good offices, conciliation, mediation and arbitration.

The concept of appellate review is an important new feature of the DSU. An Appellate Body will be established, composed of seven members, three of whom will serve on any one case. An appeal will be limited to issues of law covered in the panel report and legal interpretations developed by the panel. Appellate proceedings shall not exceed 60 days from the date a party formally notifies its decision to appeal. The resulting report shall be adopted by the DSB and unconditionally accepted by the parties within 30 days following its issuance to Members, unless the DSB decides by consensus against its adoption.

Once the panel report or the Appellate Body report is adopted, the party concerned will have to notify its intentions with respect to implementation of adopted recommendations. If it is impracticable to comply immediately, the party concerned shall be given a reasonable period of time, the latter to be decided either by agreement of the parties and approval by the DSB within 45 days of adoption of the report or through arbitration within 90 days of adoption. In any event, the DSB will keep the implementation under regular surveillance until the issue is resolved. Further provisions set out rules for compensation or the suspension of concessions in the event of non-implementation. Within a specified time-frame, parties can enter into negotiations to agree on mutually acceptable compensation. Where this has not

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31 been agreed, a party to the dispute may request authorization of the DSB to suspend concessions or other obligations to the other party concerned. The DSB will grant such authorization within 30 days of the expiry of the agreed time-frame for implementation. Disagreements over the proposed level of suspension may be referred to arbitration. In principle, concessions should be suspended in the same sector as that in issue in the panel case. If this is not practicable or effective, the suspension can be made in a different sector of the same agreement. In turn, if this is not effective or practicable and if the circumstances are serious enough, the suspension of concessions may be made under another agreement.

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OVERVIEW

OF

THE

DISPUTE

SETTLEMENT

UNDERSTANDING

The Dispute Settlement Understanding (DSU), formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes, establishes rules and procedures that manage various disputes arising under the Covered Agreements of the Final Act of the Uruguay Round.(5) All WTO member nation-states are subject to it and are the only legal entities that may bring and file cases to the WTO. The DSU created the Dispute Settlement Body (DSB), consisting of all WTO members, which administers dispute settlement procedures.(6) It provides strict time frames for the dispute settlement process(7) and establishes an appeals system to standardize the interpretation of specific clauses of the agreements.(8) It also provides for the automatic establishment of a panel and automatic adoption of a panel report to prevent nations from stopping action by simply ignoring complaints.(9) Strengthened rules and procedures with strict time limits for the dispute settlement process aim at providing "security and predictability to the multilateral trading system"(10) and achieving "[a] solution mutually acceptable to the parties to a dispute and consistent with the covered agreements."(11) The basic stages of dispute resolution covered in the understanding include consultation, good offices, conciliation and mediation, a panel phase, Appellate Body review, and remedies.

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APPELLATE BODY
The DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body "shall be composed of seven persons, three of whom shall serve on any one case."(38) Those persons serving on the Appellate Body are to be "persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the Covered Agreements generally."(39) The Body shall consider only "issues of law covered in the panel report and legal interpretations developed by the panel."(40) Its proceedings shall be confidential, and its reports anonymous.(41) This provision is important because, unlike judges in the United States, the members of the appellate panel do not serve for life. This means that if their decisions were public, they would be subject to personal retaliation by governments unhappy with decisions, thus corrupting the fairness of the process. Decisions made by the Appellate Body "may uphold, modify, or reverse the legal findings and conclusions of the panel."(42) The DSB and the parties shall accept the report by the Appellate Body without amendments "unless the DSB decides by consensus not to adopt the Appellate Body report within thirty days following its circulation to the members."(43)

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CHAPTER 4

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FINDINGS

The party bears the responsibility of ultimately convincing the panel of the truth of a fact (burden of proof);

What quantum of proof is necessary to convince the panel (standard of proof) The role of the panel, disputing parties, and non-disputing parties (e.g. experts, international organizations, private parties) in the development of the evidentiary record on which the panel bases its decision;

The consequences of a party's failure to cooperate in the process of fact-finding; how the parties can access the information which is necessary to prove their allegations.

The treatment of confidential business and governmental information.

In assessing and making suggestions to improve the answers provided by panels to these questions, the book draws on the approaches followed in the two major legal systems of the world, the common law and the civil law, and to the extent possible the approaches adopted by other international courts and tribunals

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CONCLUSION
There are consequences for the member whose measure or trade practice is found to violate the Covered Agreements by a panel or Appellate Body. The dispute panel issues recommendations with suggestions of how a nation is to come into compliance with the trade agreements. If the member fails to do so within the determined "reasonable period of time," the complainant may request negotiations for compensation. Within twenty days after the expiration of the reasonable period of time, if satisfactory compensation is not agreed, the complaining party "may request authorization from the DSB to suspend the application to the member concerned of concessions or other obligations under the Covered Agreements." Retaliation shall be first limited to the same sector(s). If the complaining party considers the retaliation insufficient, it may seek retaliation across sectors. The DSB "shall grant authorization to suspend concessions or other obligations within thirty days of the expiry of the reasonable time unless the DSB decides by consensus to reject the request." The defendant may object to the level of suspension proposed. "The original panel, if members are available, or an arbitrator appointed by the director-general" may conduct arbitration. Members may seek arbitration within the WTO as an alternative means of dispute settlement "to facilitate the solution of certain disputes that concern issues that are clearly defined by both parties." Those parties must reach mutual agreement to arbitration and the procedures to be followed. Agreed arbitration must be notified to all members prior to the beginning of the arbitration process. Third parties may become party to the arbitration "only upon the agreement of the parties that have agreed to have recourse to arbitration." The parties to the proceeding must agree to abide by the arbitration award. "Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any member may raise any point relating thereto."

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WEBLIOGRAPHY
WWW.GOOGLE.COM WWW.WTO.ORG.COM WWW.WIKIPEDIA.COM

BIBLIOGRAPHY
GROSSMAN GM&H.HOM.

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